India Macro Outlook: Infrastructure as a growth driver
This outlook has been developed by GIIA’s Policy and Research Manager Vlad Benn, and forms part of a series of insights on India in 2026.
India entered 2026 with one of the strongest near-term growth outlooks among the world’s largest economies supported by strong public capital expenditure (capex) and resilient domestic demand. In this outlook we dive into some of the key macroeconomic issues that are shaping the infrastructure investment environment in India.
Growth and inflation
India’s GDP growth in 2026 and 2027 is expected to remain close to 2025 figures at around 6.5%.[ii] We also see inflation easing in 2026 towards the Reserve Bank of India’s 4% target providing a stable pricing environment for inflation-linked revenues on long-term infrastructure assets. With growth remaining at around 6.5% and inflation easing, conditions look supportive for traffic and demand growth across roads, urban transport, airports and logistics infrastructure.[iii]
Interest rates and borrowing costs
During 2024-2025 the Reserve Bank of India maintained a strict but stable interest rate to keep inflation in check. Looking ahead, outlooks from JP Morgan, Goldman Sachs and the OECD anticipate a gradual decline in global interest rates in 2026. This could support lower long term risk premiums in India, helping to lower corporate and infrastructure borrowing costs, which remain high compared to pre-COVID levels.
Easing of rates by the Royal Bank of India are expected to help in reducing discount rates used in Infrastructure Investment Trusts (InvITS), toll road valuations and regulated assets. This should support higher equity valuations and encourage more bidding for assets.
Currency
Over the last decade the Indian rupee (INR) has seen low volatility against the dollar (USD) in comparison to other emerging markets. This coupled with the inclusion of India into JP Morgans Government Bond Emerging Market Index (GBI-EM) is attracting higher inflows of foreign debt helping to reduce the foreign exchange (FX) risk premiums on a 3-5 year horizon.
However, funding costs in INR remain above developed markets, meaning that investors will be seeking higher return thresholds for Indian assets with a preference for assets generating availability-based payments or regulated returns, over pure demand-based concessions with traffic or volume risks for example.
Implications for infrastructure investment
Infrastructure remains at the forefront of the Indian government’s priorities for accelerating growth. The 2024 general elections reinforced this commitment, with positive policy momentum through the development of the National Infrastructure Pipeline, PM Gati Shakti and PLI schemes (shown in Table I).
According to the Indian Ministry of Finance’s Economic Survey 2024-2025 government capex has more than doubled between FY21 and FY24 with the highest allocations favouring transport, power and digital infrastructure.[iv] While this has helped to bridge the gap on infrastructure needs, investment gaps still remain.
Indian credit ratings agency Crisil and others estimate that India’s infrastructure investment needs are around USD 400-500bn over the five-year period FY24-29 with the deficit seen predominately in roads, rail, metro, ports and airports.[v] However significant investment is needed in renewable generation and grid infrastructure. While the FY 26 budget looks to target a gradual reduction of the fiscal deficit, infrastructure capex is politically protected, since it is seen as the main growth lever for the economy.
While all of these factors point to a very positive investment environment, investors should be aware of execution and regulatory risks, particularly in the disputes space.
OECD analysis shows that disputes in India are typically linked to tariff adjustments, contract interpretation and change in law provisions rather than expropriation or cancellation.[vi] The more pressing constraints for infrastructure investment is often regulatory complexity and variation in implementation across states which can extend timelines and create uncertainty. For foreign LPs investing in USD, this complexity, combined with FX risk can increase their required investment returns.
However, India’s overall pro infrastructure framework remains solid. The country has a strong track record of honouring Public Private Partnerships (PPP), Build Operate Transfer (BOT) and Hybrid Annuity Model (HAM) concessions. While disputes and administrative delays can affect timing, they have not historically translated into systemic issues.
As a result, the investment environment structurally remains supportive, provided that projects are carefully underwritten with appropriate risk buffers.
[i] World Bank. Global Economic Prospects — June 2025. World Bank Group. Available at: https://thedocs.worldbank.org/en/doc/8bf0b62ec6bcb886d97295ad930059e9-0050012025/original/GEP-June-2025.pdf
[ii] International Monetary Fund (IMF). Country Information — India. International Monetary Fund. Available at: https://www.imf.org/en/countries/ind
[iii] PRS Legislative Research. Union Budget 2025–26: Analysis. Available at: https://prsindia.org/budgets/parliament/union-budget-2025-26-analysis
[iv] Government of India, Ministry of Finance. Economic Survey 2024–25 — Chapter 12: Infrastructure, Growth and Employment. Available at: https://www.indiabudget.gov.in/budget2024-25/economicsurvey/doc/eschapter/echap12.pdf
[v] CRISIL Limited. CRISIL Infrastructure Yearbook 2025. CRISIL. Available at: https://www.crisil.com/content/dam/crisilcom2-0/our-analysis/reports/crisil-intelligence/2025/01/crisil-infrastructure-yearbook-2025.pdf
[vi] Organisation for Economic Co-operation and Development (OECD). Addressing Legal and Regulatory Barriers to Quality Infrastructure Investment in India, Indonesia and the Philippines. OECD Publishing. Available at: https://www.oecd.org/en/publications/addressing-legal-and-regulatory-barriers-to-quality-infrastructure-investment-in-india-indonesia-and-the-philippines_fb81e1be-en.html
Disclaimer
This publication is provided for general information purposes only and does not constitute investment, legal, tax or other professional advice. It should not be relied upon as a recommendation or forecast.
The views expressed are those of the author(s) and do not necessarily reflect the views of the Global Infrastructure Investor Association (GIIA) or its members.
Information is based on sources believed to be reliable at the time of publication; however, no representation or warranty, express or implied, is made as to its accuracy, completeness or suitability for any particular purpose.
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